Lord Janner of Braunstone: My Lords, does my noble and learned friend accept that the only answer to overcrowding in prisons is to reduce, where proper and acceptable, the number of people sent to prison? Does he accept that, where appropriate, non-violent offenders should in general receive non-custodial sentences; that such sentences cost 10 per cent of the cost of custodial sentences; and that the chances of people committing further offences while they are on non-custodial sentences are no greater than when they are locked up in overcrowded prisons? If he agrees, what is he doing to encourage and push the courts into awarding non-custodial sentences whenever appropriate?

Lord Falconer of Thoroton: My Lords, as I said, for dangerous, violent and sexual offenders and seriously persistent offenders, custody appears appropriate. In other cases, consideration should be given to non-custodial sentences. That point has been made in the

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joint statement by my noble and learned friend and my right honourable friend in another place. That is what we are doing to try to support the point made by my noble friend.

Viscount Bridgeman: My Lords, does the Minister agree with the recent report

Lord Grocott: My Lords, we are well into the 35th minute. I think it is time we moved on to the next Question.

Education Spending

3.11 p.m.

Baroness Blatch asked Her Majesty's Government:

How the £45 billion additional expenditure for education by 2006 announced in the Chancellor's Pre-Budget Report on 27th November breaks down between early years, primary, secondary, further and higher education.

The Parliamentary Under-Secretary of State, Department for Education and Skills (Baroness Ashton of Upholland): My Lords, the Chancellor confirmed last week that by 2006 UK education spending will have increased by £15 billion compared with the current year. We will be announcing before Christmas more details of how the additional £12.8 billion for education and skills in England will be allocated. Over £4 billion will be for local authorities, which will take decisions on allocations between primary and secondary schools. Further education will be allocated an additional £1.2 billion.

Baroness Blatch: My Lords, will the Minister listen to the Chancellor's own words last week? He said:

"So I can not only confirm that we will fund our planned investments: by 2006, there will be £8 billion more a year for local authorities; £15 billion more a year for education; £63 billion more a year for public services".[Official Report, Commons, 27/11/02; col. 326.]

Those were extremely misleading words. It is not £15 billion more a year; it is £15 billion more over three years. I call that deceit and I think the House deserves an apology.

Baroness Ashton of Upholland: My Lords, I, too, have the words of my right honourable friend the Chancellor in front of me. I shall read them back to the noble Baroness:

"So I can not only confirm that we will fund our planned investments: by 2006, . . . £15 billion more a year for education".

The figures before us mean that we will be spending £53.7 billion, followed by £58.6 billion, £62.9 billion and £68.4 billion. By 2006, funding will be up, from this year to then, by £15 billion. I believe my right honourable friend was perfectly clear.

Lord Saatchi: My Lords, I had hoped at this moment to be able to thank the noble Baroness for following the normal courtesies and civilities of your

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Lordships' House by apologising to my noble friend Lady Blatch for creating a totally misleading impression during consideration of the Chancellor's speech in this House. As she has decided not to do that, will she consider that the Government's repeated use of misleading statistics to flatter their achievements and to understate their failures and the various errors of omission and commission that appear in the Chancellor's statements lead to only one result: an ever-diminishing trust in government?

Baroness Ashton of Upholland: My Lords, I do not believe that I owe the noble Baroness an apology. If I did, I would have apologised. There should be no doubt in your Lordships' House about that. I am saying that we are perfectly clear. We contacted the noble Baroness before this Question was raised this afternoon to explain precisely what was meant. I believe that I have spelt out in my Answer precisely what was being said. My right honourable friend the Chancellor said that by 2006 we will have increased education spending by £15 billion from the figure for the current year.

Baroness Sharp of Guildford: My Lords, on this occasion, from these Benches we agree with the Minister's interpretation of the statistics. There are many occasions on which we have had spin on the statistics, but on this occasion I do not think we have. However, I have a question for the Minister. A great deal of the extra money that was going into the education budget is to go directly to schools through the Standards Fund. Since this Government have come to power, a great deal of money has gone not through local education authorities, but through the Standards Fund. What proportion of the budget will be going through local authorities and how has the proportion changed since 1997?

Baroness Ashton of Upholland: My Lords, I cannot give the noble Baroness those details at this stage, but I shall of course make a Statement in your Lordships' House before Christmas announcing the precise details. I reiterate that of the £12.8 billion, £4.3 billion was announced for local authority education standard spending assessments. Noble Lords will be aware that the SSA settlement will be announced in another place on Thursday this week by Nick Raynsford.

Lord Corbett of Castle Vale: My Lords, can my noble friend remind the House of the extra provision for spending in further educationI declare an interest as a patron of a sixth-form college in Birminghamgiven the excellent job that they do in providing education and training for those who have perhaps not got all that they should have done out of their secondary education?

Baroness Ashton of Upholland: Yes, my Lords. As I have already said, we have allocated a further £1.2 billion for further education, which I am sure is welcomed on all sides of your Lordships' House.

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Baroness Blatch: My Lords, if one asked the Plain English Campaign what these words meantthat by 2006 £15 billion more a year would be spentit would expect £15 billion more each year until 2006 to be spent. That is deceitful.

Baroness Ashton of Upholland: My Lords, I have read out what my right honourable friend the Chancellor said. I reiterate that we are perfectly clear about the fact that by 2006 there will be £15 billion more a year for education. That represents increases in each year of £5 billion, £9 billion and £15 billion to get us to that point. I am sorry if the noble Baroness misinterpreted what my right honourable friend said. I hope that I have clarified for your Lordships' House precisely what the figures are.

Business

Lord Grocott: My Lords, with the leave of the House, there will be two Statements to be repeated this afternoon at a suitable time after 3.30 p.m.the first by my noble friend Lord Whitty on hunting with dogs and the second by my noble friend Lady Ashton on the Tomlinson inquiry.

Public Services (Disruption) Bill [HL]

Lord Campbell of Alloway: My Lords, I beg to introduce a Bill to make provision to contain disruption of public services by collective industrial action and for connected purposes. I beg to move that this Bill be now read a first time.

Moved, That the Bill be now read a first time.(Lord Campbell of Alloway.)

On Question, Bill read a first time, and ordered to be printed.

Waste and Emissions Trading Bill [HL]

3.18 p.m.

The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Whitty): My Lords, I beg to move that this Bill be now read a second time.

Although apparently modest in itself, the Bill will set up and enhance the frameworks to help the UK to address two key environmental challengesclimate change and sustainable waste management. There is a strong link between the two challenges. Less reliance on landfill will help reduce the production of greenhouse gases as well as helping us achieve our goal of putting a sustainable waste management system in place. These challenges are the subject of two important international commitments: the Kyoto Protocol and the landfill directive. The provisions in the Bill will help the UK to deliver on both these commitments.

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This modest Billonly 35 clausestackles these two challenges through similar economic instruments. It will stimulate reductions in the emission of pollutants and make us less reliant on landfill in the most economically efficient way. It will support the world's first economy-wide greenhouse gas emissions trading system with statutory penalties. It will also set up a landfill allowance scheme, which is probably the first scheme of its type in Europe, possibly the world, to address waste.

The Bill uses trading to meet environmental goals, as trading is a flexible and cost-effective economic instrument that allows reductions, whether in landfill or emissions, to be made where it is cheapest to do so. Target holders in a trading scheme may do one of three things. First, they can take in-house action to reduce to their target levels. Secondly, they may reduce below their target and sell or bank the "surplus". Thirdly, they may let levels remain above their targets and themselves buy allowances from other participants. But because total levels are constrained to the sum of the individual targets, an overall environment-led benefit is achieved.

Your Lordships will be aware of the threat to the global environment caused by man-made emissions of greenhouse gases. The role of landfill in adding to these emissions may, however, seem less clear.

Landfilling biodegradable waste produces methane, a greenhouse gas some 21 times more powerful than carbon dioxide and 25 per cent of UK emissions of methane come from landfill sites.

The UK currently landfills nearly 80 per cent of its municipal waste, which is a lot higher than most other countries in Europe. As well as the implications for climate change it means we gain no additional value at all from the resources contained in the waste. Many of these resources could be reused or recycled or have energy extracted from them.

It is the goal of the UK Government to move to a more sustainable waste management system. A key for sustainable waste management is the waste hierarchy. That gives a framework for how waste should be managed: the higher up the hierarchy the more sustainable the management of waste. The hierarchy starts with reducing and minimising waste; then reusing what would otherwise be waste; then recycling; then recovery through composting and energy recovery. At the bottom comes disposal.

Each of the UK administrations have strategies to manage waste through the hierarchy, which derives from the Waste Framework Directive. The Strategy Unit of No 10 has just reported on delivery of the strategy in England and has recommendations on how to move management of waste further up the hierarchy.

This Bill is only part of the wider strategy. It is looking at the over-dependence on landfill at the bottom of the hierarchy, and the environmental problems of the production of methane in landfill.

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To tackle this problem the European Union agreed in 1999 to the Landfill Directive. This directive includes stringent targets to cut the amount of biodegradable municipal waste which is sent to landfill.

Within the UK these are devolved matters to all administrations, with the Scottish Parliament having legislative competence. For Northern Ireland this Bill will support the legislative base should the outcome of consultation support landfill allowances there. The administrations have agreed to act together, and have agreed that this Bill be considered in total by this Parliament. This will increase the effectiveness of the measures by widening the area for potential trading.

The obligations on the UK, even allowing for a four-year derogation require a 25 per cent cut in landfill of this waste from that produced in 1995 by 2010; 50 per cent by 2013 and 65 per cent by 2020. This is a very significant challenge for this country. Indeed, the challenge has become more difficult year on year. Municipal waste is currently growing at 3 per cent to 4 per cent a year with recycling growing at only 1 per cent. So we are landfilling at the moment more biodegradable municipal waste than ever and getting further away from our targets.

Biodegradable waste represents about 63 per cent of the municipal waste stream. It is that waste which may undergo anaerobic or aerobic decomposition. In other words, that means it either rots in air or without air. This type of waste includes paper, cardboard, food and garden waste and natural textiles. All these wastes can be recycled or recovered in some way.

We recognise the scale of the challenge and the large investment in alternatives to landfill which will be required. These reductions are obligations on all who use landfill and who produce waste. However, as the Landfill Directive targets apply to municipal waste we have to look to local authorities to deliver compliance with those targets.

Local authorities have been consulted in England and Wales on how to meet the challenge and consultation is continuing in Northern Ireland. The Government proposed allowances as an imaginative approach which should prove flexible and effective as well as giving certainty to local authorities about their obligations. There was general agreement in Great Britain on this approach.

Those noble Lords who follow these issues will know that when we consulted on this approach, it was called a permit system. We have changed the terminology to use the term "allowances" for legal clarity as landfills will already have pollution control permits as a result of other parts of the Landfill Directive.

Part 1 of the Bill gives the Secretary of State the power to specify the maximum amounts of biodegradable waste which can be sent to landfill in each of the four countries of the United Kingdom. Naturally, she must consult the devolved administrations. That target setting must be carried out for each of the Landfill Directive target years. For the interim non-target years the Secretary of State may

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set limits with the countries' agreement, or there is a default formula to set them. That is intended to provide an even profile of reduction to meet the targets over that period.

After this initial division, responsibility for setting up an allowance scheme rests with each devolved administration in the UK and the UK Government for England. This reflects the fact that environment policy is devolved.

Scheme details will be set out in regulations: each devolved administration will be able to produce its own scheme and decide on the allocation of allowances in its area. It will also have to decide whether to permit trading in its area. Those countries who do decide to take advantage will become part of a cross-border trading scheme.

There is an absolute duty on each waste disposal authority not to exceed the allowances which they hold, whether by initial allocation or as a result of a trade. However, no local authority will be obliged to trade: it may simply stay with its allotted allocation. Equally, the Bill gives flexibility for trading to be for no monetary valuesimply a question of transfer by arrangement between the authorities.

However, we are not giving third parties the right to hold or trade landfill allowances. There are a number of reasons for this: first, we want opportunities for local authorities to trade surplus: secondly, because the targets will be difficult for the UK, so we do not want any possibility of allowances being "retired" out of the system. Neither do we want waste companies to purchase allowances and use them themselves; for example, for direct procurement. It is therefore confined to local authorities.

Details of each scheme are for the United Kingdom and my department in England and the devolved administrations. The Bill gives sufficient flexibility to allow for a variety of models. But each local authority will receive allowances which will represent maximum amounts that can be landfilled in each year. The intention is to allocate allowances for every year up to and including the final target year of 2020. Local authorities can then plan their progressive diversion from landfill over that period. However, the Bill recognises that over a period of 16 years the situation can change so there is a provision to revise the allocations should this prove necessary.

The schemes will be monitored by monitoring authorities appointed for each country in the United Kingdom. They will record each transfer on a central register and the trade will not have taken place until the record is made. Using the regulators has the additional benefit of least burden and cost as they are already responsibleor in the case of Northern Ireland soon will befor regulating landfills and collect information from landfill operators and local authorities, so there is no duplication.

If a waste disposal authority landfills more biodegradable municipal waste than it holds allowances for, there will also be civil financial penalties. These penalties will be set out in regulations. They will need to be set at a sufficient level to ensure

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that the local authority has the incentive to divert from landfill or buy allowances rather than breach the limits. This is essential to secure the Landfill Directive targets and to underpin an effective trading scheme.

However, the aim is not to take resources out of local authorities but rather to encourage them to meet the targets in a sensible and co-ordinated way. That is why the Bill also allows the allocating authorities to suspend and/or cancel penalties if necessary.

The importance of the directive target years is again acknowledged in the power for a supplementary penalty if a waste disposal authority breaches limits in a directive year. This is a proper reflection of the legal obligation in the directive on the UK and is backed up by penalties from the EU, which could amount to £180 million a year.

Part 1 of the Bill also implements Article 5(1) of the directive by requiring each country to produce a strategy to reduce the amount of all biodegradable waste which is sent to landfill. As your Lordships will be aware, these strategies have, in the main, already been produced.

Chapter 2 relates solely to Wales. This gives to the National Assembly for Wales the power to require the Welsh local authorities to prepare municipal waste management strategies. The Assembly may also require information about municipal waste. That derives from the waste strategy for Wales, Wise about Waste, which made it clear that the Welsh Assembly Government intended to require local authorities to have those strategies. It will enable them to make sensible provision and it will enable the devolved administration to meet international commitments. The Assembly has worked closely with local authorities in Wales over the provisions.

I turn to Part 2, which deals with emissions trading and is part of a far wider commitment to implement a wide-ranging and innovative climate change programme to deliver both Kyoto and domestic greenhouse gas reduction targets. We are proud that the UK has the world's first economy-wide greenhouse gas emissions trading scheme. There is voluntary participation by companies, which will deliver absolute emissions reductions to the benefit of the UK, and, more importantly, to the globe as a whole. It will also give UK business, Government and the City of London a head start in the practical operation of such schemes and prepare them for the introduction of wider trading schemes at EU and international levelpotentially a billion dollar market.

There are four types of participant in this scheme. First, and most directly affected by the Bill, direct participants; those companies that have taken on an absolute five-year emission reduction target from sources within the scheme in return for a financial incentive. These are represented by 34 organisations spanning a range of sizes and sectors, including public sector bodies. Certain exclusions apply, the main one being power generators. Within the scheme, the controlled emissions are the responsibility of the end-user, rather than the generator.

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The second target-holding type is climate change agreement participants. These agreements between Government and sector associations and operators in 44 energy intensive sectors set energy or emissions targets. Meeting the target allows an 80 per cent discount from the climate change levy. Climate change agreement holders, both sector associations and operators, can use the scheme to buy allowances to help meet their target or, if they over-achieve, to sell the surplus.

Thirdly, there are trading participants, which do not hold targets, but simply buy and sell targets in the allowance market. We are also working on a fourth entry route to allow approved UK based emissions reduction projectsas distinct from companiesto generate credits valid against targets in the scheme. A pilot phase is due to be launched early next year.

It is essential for the scheme and the emerging allowance market to be underpinned by a robust compliance regime; it is a voluntary scheme that needs to be underlined by penalties. It must always be more attractive to turn to the market and buy allowances than to face the penalty for non-compliance. The Bill will then deliver on the promise made explicit in the contracts and other scheme documentation when we set up the scheme to provide for statutory penalties for direct participants who fail to meet their annual emissions targets. This will be welcomed by all participants in the scheme. It is in their interest to underpin and stimulate the market. The Bill does not change compliance consequences for climate change agreement participants, which would lose their levy discount for failing to meet their targets.

We have learnt the lesson from the introduction of the UK emissions trading scheme about the need for a market to have a robust compliance base. Therefore, we are taking this opportunity to prepare for future emissions trading schemes. Hence Clause 31 gives us the power to provide for penalties in future schemes. It does not specify that such potential schemes may cover other pollutants regulated under the Pollution Prevention and Control Act 1999 and regulations, such as the acid rain gases sulphur dioxides and nitrogen oxides.

So the Bill tackles some of the biggest environmental challenges we face, both as a nation and internationally. It does this through innovative instruments which will share burdens more effectively. It uses market based tools, which should deliver more economically optimal solutions. We are meeting future challenges through future means. I commend the Bill to the House.

3.35 p.m.

Baroness Byford: My Lords, on reading the Bill for the first time my dominant emotion was disappointment. I had anticipated something that would put waste management centre stage. I had envisaged that the Government would take the initiative and produce a document with which there would be little disagreement.

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But where is the hierarchy of this waste treatment? Where are the measures to reduce waste production in the first place, then to encourage the re-use and recycling and composting of such waste? Where is the pressure to recover energy from waste? Alas, my Lords, apart from the penalties related to emissions trading, the Bill is predominantly about landfill.

More than that, sadly, it is aimed at biodegradable waste going into landfill, which forms only 6 per cent of our total waste produce. Does inert material in England, Scotland, Wales and Northern Ireland not matter? Am I wrong in believing that the use of plastics is increasing, particularly in excessive wrapping and packaging? The Bill refers to weight and not to things of lighter weight.

I know, for example, that a lot of work is going on with the re-using of worn out car tyres, but they are still going to landfill. They are hardly considered biodegradable. The Bill has nothing to say about the fridge mountains, nor the looming problem of disposal of old cars. Should there not be a rule or two about the rubble produced when brownfield sites are re-used?

I referred to three countries where clearly waste disposal is a devolved responsibility. Why then can the Government tell Scotland, in particular, to consult? Why does the section on waste management in Wales go into such fine detail about what the Assembly may include in its regulations? I note that there is no parallel provision for England.

My right honourable friend Kenneth Clarke introduced the landfill tax. It was the first ever hypothecated tax and its proceedsor some of themwere intended to benefit the environment. Many a rural community has been reconciled to huge waste pits down the road by flows of funds to help improve the village and surrounding countryside. I wonder whether the Bill will gladden anyone's heart. Will the stringent targetsthose that are known, because the figures are still not known to usresult in enthusiastic reduction, re-use or recycling?

Do the Government envisage giving priority to the treating of planning applications that will be needed to help promote recycling? Without priority planning permission being given, some of the Bill's aims may fall short. For example, I was told recently that one company had applied for a bottle recycling plant but was turned down by the local council.

Perhaps we are intended to read between the lines and realise that the threat of EU penalties will ensure that the Government act, fund new research into new ways of producing energy from waste and remove the obstacles to recycling. For instance, millions of eggshells from packaging stations, from dried egg producers, cake makers and other food producers currently go into landfill. They could be used as an ingredient for compost and for reclaiming land, but the current animal products legislation does not allow this. Will the Government address that issue?

The landfill tax may have resulted in some environmental benefits. It does not, however, appear to have been effective in reducing the quantities of waste going into landfill, which the Minister

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acknowledged in his opening speech, even if some has been temporarily diverted into lay-by, gateway, lane or coppice. The thirteenth report of the Environment, Transport and Regional Affairs Select Committee quoted evidence to show that landfill tax started too low and has increased too slowly to be an effective deterrent. Again, I would be grateful for the Minister's observations on that point. There was also evidence that the tax has not provided business with adequate incentives to reduce, reuse or recycle waste.

In the Autumn Statement, the Chancellor indicated that, from April 2005, the escalator will be set at £3 per tonne per year rather than the current £1 per year. Should there not be a cross-benefit whereby firms are credited for reusing and recycling materials which would in other circumstances have been waste?

Big firms can make their own arrangements. Perhaps like other Lords, however, I have received correspondence outlining the concerns of smaller and family businesses. The Federation of Small Businesses believes that the cost of these measures will fall harder on smaller businesses. Will those who choose to pay landfill tax rather than to reuse or recycle be instrumental in frustrating achievement of the disposal authorities' targets, or will the latter be able to control local business? At the moment, if I wished to have a massive clear-out from home, for example, I would order a skip, the rate for which would depend on whether I wished to dump only inert material or biodegradable material. Will the companies providing that service be put out of business? How will they be able to continue operating?

Even if some way is found to control landfill operators, what will happen to loads exceeding the targets? Will they be turned away? Will the owners of the waste be charged by means of a fine accruing to the local authority?

If targets are established, there will be penalties for failing to reach them; in Clause 6on the borrowing and banking of landfill allowances, which is a sort of draw-down facilityprison is mentioned. Clause 25, however, allows the allocating authorityin England, the Secretary of Stateto specify the penalty. The allocating authority can then allow extra time to pay oras the Minister saidwaive the interest on overdue sums or cancel the penalty entirely. There is a slight muddle here which detracts from the push that the Government are trying to make.

The Government do not seem to be offering anything that will significantly impact on the amount of rubbish going to landfill. Ministers are coy about their targetsother than to link them to levels in 2001. Perhaps I may remind the Minister that foot and mouth erupted in February 2001. Have the 2001 figures been inflated by the amount of carcasses and ash that went to landfill during the outbreak?

How will the tradable allowances be set? Will the allocating authority nominate the landfill site to which the waste authority may deliver loads? Will Birmingham, for example, be restricted to trading with south Staffordshire or north Warwickshire, or will it be able to trade anywhere? Will the permits carry the

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same location conditions? Will the sale of excess quota to Bradford, for example, result in streams of lorries travelling long distances along our roads? All noble Lords will be acutely aware of the public's concern about the quality of our air. Air pollution is one thing that we are definitely trying to reduce. Have the Government commissioned cost analyses of the possible results of the trading system? Can Ministers say where, when and how often the environment will win?

I am similarly concerned that the Bill does not mention the revision of targets to allow for government action. I have in mind, for example, the recent decision to outlaw the feeding of swill to pigs. The catering waste that used to go to farms now goes to landfill. It is a significant amount of waste, totalling about 200,000 tonnes, I believe. That change happened overnight. In similar circumstances, other targets may have to be reset. Does the Bill allow for such changes? The Minister is keenly aware of biosecurity issues such as disease spread and the possibility of contamination leeching into watercourses. Perhaps he will touch on those issues in his reply.

As a side issue, I am a little surprised that the Bill does not mention tighter controls on the state of biodegradable matter going to landfill. After the recent concentration on biosecurity, I was expecting to see some rules which are similar to those in Germany. My noble friend Lord Luke will address that issue later in the debate.

I have two specific questions for the Minister. Will he clarify how the Government intend a waste disposal authority to deal with hazardous household waste? It has been suggested that, under the new arrangements, waste such as redundant batteries, and electrical goods including cameras and hairdryers, may not be covered by existing legislation. The provisions of the hazardous waste directive are very clear and definite, but the provisions of the landfill directive are less so. As we know, however, batteries and smaller electrical appliances known as white goods are sometimes placed in the same bins intended for landfill. Do the Government anticipate that waste disposal authorities will distinguish between the two forms of waste? If so, how will they do so?

Does the Minister accept that the Government have a duty to inform all interested parties, especially industry, of the capital investment required of them to make the scheme work successfully? My understanding from the industry representatives who have come to see us is that implementation will cost £1.5 billion annually for the next 10 years. It is a huge sum.

Does the Minister share my concern that some waste disposal authorities may decide that it is cheaper to use the trading scheme rather than to tackle the issue of reuse within their own boundary? I am sure that that is not one of the Bill's objectives, but I should be grateful for some clarification on that point. I have been contactedto name only a fewby the Local Government Association, the National Farmers

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Union, Friends of the Earth, the Environmental Services Association and, as I said, the Federation of Small Businesses. All of them are keen that the Bill should work well, but they have concerns which we shall be able to discuss in detail in Committee.

I cannot end my speech without at least mentioning Part 2 of the Bill, althoughas noble Lords will seeit comprises only a small proportion of the overall legislation. It is a long time since 1999, and we have fought many battles since thenon the Countryside and Rights of Way Bill, on the Food Standards Agency and on the Animal Health Bill, to name but three. However, I am sure that the emissions trading scheme established in the Pollution Prevention and Control Act 1999, to which the Minister referred, was intended to be voluntary. The Minister will undoubtedly correct me if I am wrong, but I do not believe that the Government have made that scheme compulsory. I presume that this Bill will make such schemes compulsory. The Minister is shaking his head. Perhaps he will clarify the point later.

We welcome the Bill in principle. As I said, however, I am disappointed that the Government have failed to take a holistic approach to the waste problem. I fear that fly-tipping, for examplea subject which this House has often discussedwill increase rapidly. The Bill also, as I said, fails to tackle at source the growing problem of waste production. Nevertheless, I support the Bill in principle.

3.49 p.m.

Lord Livsey of Talgarth: My Lords, the Waste and Emissions Trading Bill meets our obligations under the European Landfill Directive and further develops emissions trading schemes. It certainly begins to combat climate change. It also moves towards sustainable waste management, which is to be welcomed. Our response has generally been supportive in tackling UK waste generation and disposal and meeting the challenges of the landfill directive. However, the Bill may be operating in isolation from the wider challenge of increasing household and industrial recycling and composting rates, which are to be found in the targets that are set in other European directives; for example, on packaging and packaging waste. This has burgeoned in recent years and there is undoubtedly a need for more constraints on the commercial instigators of ever more packaging, the disposal of which constantly presents problems for hard-pressed local authorities.

The Bill relates to the wider review of waste management that has recently been published by the strategy unit. As regards the hierarchy of disposal mentioned by the Minister, I tend to agree with the comments made by the noble Baroness, Lady Byford. Where is it? Where is the practice of the hierarchy laid down in the Bill and where are the targets that will be set in relation to each method of disposal?

The question of emissions trading is one which we support in principle, but we are critical of the scope of the scheme in operation because only larger businesses

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can participate. Indeed, in future, the European Union scheme will operate in a different way from that of the United Kingdom. We will therefore seek to amend the Bill and I would ask the Minister what are his views in relation to these differences and how they can be reconciled. For example, we need to take account of these present failings and indeed future challenges. We will highlight the issues not included in the Bill, which we believe are crucially important to the future of both waste management and emissions trading.

There are two problems with the Bill as it presently stands. First, the inclusion of incineration and its relation to recent Budget proposals for rises in landfill tax. That could mitigate against the increased use of recycling and composting and could well be the subject of amendments from these Benches.

The removal of energy recovery will undoubtedly be the subject of an amendment to the Bill. It could emphasise and promote other forms of treatment in preferencefor example, more recycling and composting, to which we as Liberal Democrats certainly give priority.

As a Welsh Member of this Chamber, I welcome the devolving of functions in Chapter 2 to the Welsh Assembly and, through secondary legislation, it is important that the Welsh Assembly consults on and produces an appropriate schemewhich it has now done, and I welcome that. From my knowledge as a former constituency MP, I know that the cost of landfill is quite a burden on local authorities. One authority with which I am well acquainted was faced with the cost of landfill representing 4 per cent of its total budget. That very often applies to rural areas, where the total budget of such authorities globally is rather less than the much larger budgets of those in urban areas.

I am also concerned about the impact of the legislation on agriculture. We must be aware of inadvertent inclusion of legitimate farming activities in this Bill. For example, agricultural waste within the scope of the Bill could be problematic. It could refer to biodegradable wastes and how they are disposed of.

Fly-tipping has already been mentioned, and it is certainly on the increase. A possible result of the targets on householders could result in more fly-tipping of biodegradable material that waste disposal authorities will perhaps not go out to collect.

Those of us who live in the countryside and are involved in farming have noticed the dumping of more cars, more tyres, more household waste, indeed even construction waste in quite large quantities. That occurs especially on the urban fringe. In a recent NFU survey of 2,000 farmers, two-thirds said that they suffered from fly-tipping. That is a very large number of those who are managing land. Fly-tipping can be dangerous to livestock and it pollutes. As we know, farmers can be held responsible and the cost of getting rid of the material that is dumped on their land can be very considerable.

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There is also the impact on agricultural land of excessive biodegradable applications and the run-off from agricultural land into water and watercourses, which could have a knock-on effect on drinking water, a point made by the noble Baroness, Lady Byford.

The disposal of organic waste, particularly catering waste, on agricultural land could include meat. We all know of the problems relating to swill, but this could be another way in which meat products might affect grazing animals. Have DEFRA vets been consulted on the possible disposal of catering waste onto agricultural land and the impact of that on animal health? Have the Environment Agency and the Food Safety Agency been consulted, and have alternative methods of disposal of this material been examined?

We believe that emissions trading is a big move forward. Indeed, the principle of robust compliance which the Minister outlined is vital as indeed is the point that it must be attractive to markets in order to allow purchases. This is innovative and is to be welcomed, but there is a tremendous amount of detail in the Bill that needs to be debated and discussed. We will address all of these matters in terms of amendments. Indeed, we will seek to make the Bill as effective as possible.

3.58 p.m.

Lord Haskel: My Lords, I thank the Minister for explaining the Bill. I feel some sympathy for him because, on waste disposal and emissions, the Government really are between a rock and a hard place. However, this is not the first time my noble friend has been there.

As the Minister explained, on the one hand the Government are under pressure from the packaging and landfill directives of the European Union. They are also under pressure from the Kyoto climate change undertakings. On the other hand, local authorities and business are concerned about the additional costs and the extra work produced by the regulations. The Green Alliance and the environmental groups say that the cost should be higher to encourage more environmentally friendly action. Business organisations say that costs should be lower because they are concerned about our competitiveness.

What are the Government to do, stuck in the middle of all these pressures? The answer has to be some sort of compromise, which probably satisfies nobody but achieves a reasonable balance. I think that the Government have tried to do that in the Bill.

I find that the Bill is consistent with past policies. It sticks to the principle of the polluter pays; indeed, the Bill says how much. It discourages climate change gases. It encourages a more pleasant environment. The trading element rewards firms and local authorities which are more diligent in reducing pollution. Incentives are needed. According to the Pre-Budget Report, there seem to be large discrepancies between the best and the poorly performing authorities. Waste and emissions trading mixes discipline with incentive to encourage the poorly performing authorities to raise their game.

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I am glad therefore that noble Lords welcome the Bill. To reject it out of hand would do a disservice both to business and to local authorities which are anxious to raise their levels of recycling and lower their levels of landfill.

Nowadays, the more thoughtful businesses and local authorities are trying to show a more human face. They do so through corporate social responsibility. That has caught on because more and more businessmen realise that, by alienating the public, they alienate their customers and their own employees. Respect for the environment is a major element of corporate social responsibility. I believe that the Bill will be a step towards helping businesses to achieve their objectives in that respect.

In reality, business has little alternative but to get to grips with these environmental issues and to make the most of the incentives provided. The incentives ensure that the amount of tax paid and the amount of regulation suffered are not fixed; they vary according to the efforts of individual businesses and authorities. At the same time as raising standards by rewarding reduced air and land pollution, the Bill also rewards the corporate social responsibility which business is trying to achieve. Higher standards may have some cost to business and industry but that can be recovered.

Higher standards also provide economic benefits to the economy. A recent study demonstrated that less pollution reduced the cost of damage to rubber and painted surfaces of buildings. Business also benefits from better health achieved through a cleaner environment, and industry itself becomes more efficient by producing less waste. Therefore, the Government are right to encourage these high standards. The Government's Envirowise programme saved British business £43 million last year by encouraging better working practices.

But there is more. The demand for high environmental standards has created a whole new environmental technology and services industry. In a very interesting letter in today's Financial Times, Mr John Acton makes that very point. He explains how the carrot-and-stick approach gives British industry a chance to lead the world in recycling and recovery technology. I agree. By promoting high standards here in Britain, we put the British environmental services industry in a strong position to exploit the enormous 500 billion dollar global market-place. Indeed, because of its potential, the DTI has made this industry one of the targets for its growth and innovation team.

Here, I declare an unpaid interest. I am the honorary president of the Environmental Industries Commission. The commission is supported by all political parties, by academics, environmentalists and trade unions, and by more than 225 firmslarge and smallin this sector. We all believe that we can create a clean and sustainable environment not only by regulation but also by the use of existing and new technologies, through science and by innovation and

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investment. I can tell the Minister that the Environmental Industries Commission welcomes the Bill.

As well as technology and regulations, trading schemes, such as the one in the Bill, are an important and efficient way of encouraging higher environmental standards. They use the power of the market. By setting a market price for a pollutant, trading sends a powerful signal to business about the benefits of reducing its use of that pollutant. For example, the US sulphur dioxide trading system has proved a successful mechanism in reducing emissions of that pollutant.

The Minister spoke of the importance of compliance. I agree. To be effective, trading schemes must have clear rules and penalties, together with a culture of acceptable behaviour on such matters as insider trading. The penalties are essential as they ensure that participants comply with the caps set out in the emissions trading scheme. In that way, the British public is sure that the environmental outcome that the scheme aims to achieve really is achieved; otherwise, the scheme simply becomes a casino for speculative traders and nothing is achieved.

The schemes work best if they are mandatory, propose clear emission limits and set uniform penalties for non-compliance. Therefore, I hope that the Minister can assure me that confining the scheme to a limited number of participants means that it will contain those features and will not be another casino, as has happened in some industries. Perhaps the Minister can also say what happens if people who trade in such schemes eventually cannot pay. Will there be some kind of compulsory insurance?

I support the Bill in its aim of ensuring that the polluter-pays principle is upheld. It lays out how much such polluters should pay by setting emission limits, thereby establishing a market price for pollutants. It achieves that in a very creative way. The Bill is not about more regulation; nor is it about placing more burden on industry. I believe that it encourages the higher standards and better environment that people are rightly demanding.

4.6 p.m.

Lord Dixon-Smith: My Lords, like my noble friend Lady Byford, I, too, am concerned that so much is not included in the Bill. The main part of the Bill is concerned with how we handle biodegradable domestic refuse, and I shall largely confine my remarks to that aspect.

Like the noble Lord, Lord Haskel, I sympathise with the Government. I sympathise with them because they are between a rock and, in this case, a soft placethe soft place being biodegradable domestic refuse and the hard place being the European directives that could result in this country having to pay large financial penalties by 2015 if we do not alter our ways. A cynic might observe that the penalty schemes derived within the Billwe do not have the details of them but we know they are thereare intended simply to raise funds in order to pay the penalties should we

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miss the targets. There is an element of justice in that because, if we fail to meet the targets, it will be because people on the ground have not met them.

Be that as it may, the scheme as outlined brings about what I consider to be the ultimate "Sovietisation" of the waste disposal industry. We have a national plan, national targets and national timescales; we have devolved targets and devolved timescales; we have local allocations and local timescales; and we have trading and penalties. If that is not similar to something that went on in another country a while ago, I shall be very surprised.

It is a sad fact that pollution prevention control and, now, waste disposal seem to have brought out the worst of government legislative practice. I refer to the latest report of the Delegated Powers and Regulatory Reform Select Committee. At paragraph 26 on page 6, the report states:

"The Bill is, effectively, almost a 'skeleton bill'. We have previously reported unfavourably on such bills, which leave many important matters to ministerial discretion. Even where the powers in the bill are subject to affirmative procedure, Parliament can only accept or reject what is proposed. It cannot amend it. Had this bill applied only to England, we would have considered seriously whether to recommend that some of what is proposed to be done by regulations should appear on the face of the bill. We appreciate that the highly unusual structure of the bill was to some extent dictated by the different legislative procedures under the devolution arrangements. While we do not propose any amendment at this stage, we draw the House's attention to the extent of the delegated powers in the bill".

Half the clauses in the Bill17 out of 34involve proposals to bring in regulation. That is a part of the Bill that we cannot see and do not know. Therefore, it is very difficult to judge how or whether the Bill will work.

There is another aspect to this issue. We do not know, and cannot knowand will not know I suspect for quite some timeunder what financial regime the Bill will work. I shall return to that matter later on.

In the good/bad old daysthey were quite funEssex was involved in the disposal of more than 35 per cent of London's domestic refuse in addition to its own. So it might be said that I have considerably dirty boots on this subject. The waste was disposed of in Essex because it had places where it could go. The waste was used as a land reclamation tool. Despite the transport costs, it was the most economicin terms of costway of disposal.

The alternative in those days was the Edmonton incinerator, or its equivalent. That was in north London and took waste from about half-a-million people. We could never get accurate costings as to what it cost to dispose of waste through Edmonton. The best figure we could produce was that the cost was about three times that of disposing of waste in landfill in Essex.

There has been a progression since those days. I shall not say that Edmonton was "superseded" because I think it is still going, but a new type of plant was brought in called SELCHP (South East London Combined Heat and Power). That was a very sophisticated modern plant, which still operates in south-east London. It involves incineration. But it

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involves incineration in order to generate electricity and, more importantly, community heating. If my memory is correct, it heats something like 5,000 to 6,000 houses. That was seen as a big step forward, as indeed it is.

There is still an irreducible minimum of waste for disposal, but this provides a great deal of recovery to the community. The difficulties were the planning problems. The Nimby attitude runs strong in us all. No one likes to have a steady stream of waste-carrying trucks pouring past our front door. There is always the environmental fearhowever unreal it may be and however sophisticated the plant may be to prevent riskthat something will go wrong and that people will get nasty noxious emissions from such a plant. But for such plants to be effectiveand the direction that we must move inthey must be centred in or on the immediate fringe of a community because not least of the problems of waste disposal is that transport costs are very high. If one is in the business of recoverybe it energy or whateverone has to minimise costs in order to make things work.

I think we shall reach the point where communities or, in rural areas, small groups of communities will have once again to accept their own liability for waste disposal. Difficulties are created because of this planning problem; people are naturally and inherently reluctant to discuss and deal with the problem.

I turn towards the future. I mention two other systems that go even further and which have a great future. Anaerobic fermentation will be the next big thing. Using this system one can take biodegradable domestic waste and produce ethanol, which the internal combustion engine runs on very successfully. That is the first possibility. But of course if one burns ethanol through the internal combustion engine, one still gets the normal atmospheric pollutants that one gets from burning hydrocarbon fuels in an internal combustion engine.

One can take the ethanol system a stage further and produce methane, which is a purer fuel and more clean-burning and still can be used through an internal combustion engine or in furnaces or for electricity generation. That is fine, but once again the combustion process still produces atmospheric pollution. One can take the methane process a stage furtherthere are plants already beginning to do thisand produce hydrogen. That is the ultimate clean fuel: burning hydrogen produces water. Since one is using recovered hydrogen from plants that have already grown, that would be totally environmentally neutral and totally environmentally clean.

Systems to do that, as I have said, already exist, but they are expensive. There is another possibility, for which I am grateful to the Economist. I read in the Economist that in the past two weeks plants in California and the Netherlands have been specifically created to deal with soiled nappies, which are to be converted into useable productswallpaper was mentioned, shoe insoles, roof shingles and so on. There are a great many uses, but there are questions of course of market acceptability.

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The reason I mentioned that is not particularly to highlight that problem, but to highlight another. Those plants in order to operate have been established with a direct subsidy of £65 per tonne of soiled nappies that they use. If one compares that with the cost, without tax, of landfill disposal of about £10 per tonne, one can see immediately why concern about the financial regimeand lack of information about the financial regime for the futureis absolutely critical as to whether the Bill will work and whether the targets can be met.

The nearest I can get on the financial side is an article in the Financial Times last Saturday, which seemed to indicate that local authorities will be obliged to operate under Treasury-set financial disciplines and incentives. I shudder at the thought. But, I shudder at the thought because I do not know what they are. It is extremely difficult to know how this House is to pass judgment on this Bill without that knowledge. So, if one can get over the philosophical difficulties with, what I would call, "bringing out the worst in the Government's legislative practice", the Bill is welcome, but it raises more questions than it answers.